Why you should care
The move comes amid growing concerns that the U.S.-led trade war against China could also envelop Taiwanese companies.
The Taiwanese government is drawing up measures to encourage companies with factories in China to shift operations back to Taiwan, in response to the rising threat from the U.S.-China trade dispute on its critical electronics manufacturing industry.
The incentives, which are being finalized, include relaxation of Taiwan’s strict land-use regulations as well as expanded tax breaks for spending across equipment upgrades, research and development, and manufacturing automation, trade officials have said.
“If [companies] decide to come back to Taiwan to produce more products, we know we have to help them,” says John Deng, Taiwan’s top trade negotiator and minister without portfolio.
The move is a fresh sign of global fears over collateral damage from increased U.S. protectionism against China. While investors are bracing themselves after President Donald Trump said earlier this month that his administration could move “very soon” on the next wave of U.S. tariffs on $200 billion of Chinese exports, analysts have warned the trade dispute between the world’s two largest economies would probably escalate and drag on the Chinese economy. In a tweet two weeks ago, Trump said prices for Apple products might rise because of new tariffs imposed on China, and exhorted the company to make its goods in the U.S. instead.
How can you respond to a short-term problem with a solution that takes multiple years to complete?
Elizabeth Sun, spokesperson, Taiwan Semiconductor Manufacturing
Taiwan is one of the most exposed economies to any slowdown in China. Taiwanese-owned electronics manufacturers, including a bundle of Apple suppliers, run large production bases in China, and China takes about 40 percent of Taiwan’s exports. Officials in Taipei do not expect a significant loss from the tariffs already imposed or from the next proposed round, but the impact would be “very serious” if the dispute deteriorated to the point tariffs or other retaliatory actions targeted consumer electronics such as handsets and notebooks, says Deng.
Taipei’s bid to attract companies back to Taiwan is also in line with a broader policy to reduce dependence on China. Beijing, which claims Taiwan as its territory, encourages closer economic ties.
However, analysts were doubtful the proposed incentives would entice manufacturers en masse to relocate to Taiwan.
Despite several electronics companies already shifting some “small scale” production for U.S.-bound components back to Taiwan from China in response to the tariffs, the cost involved and a lack of flexibility in the technology supply chain would curb a larger-scale exodus, says Clark Tseng, a senior research analyst at Semi, a global chip industry association.
“Most of the final assembly is still in China, so I don’t see a big move of production from China to Taiwan,” says Tseng.
Taiwan Semiconductor Manufacturing — which is the world’s largest contract chipmaker and a key supplier to Apple with operations in China and Taiwan — would not comment on the government policy, but spokesperson Elizabeth Sun said the company’s decision in 2016 to spend $3 billion building a chip factory in Nanjing, in eastern China, followed years of investigation and planning.
“How can you respond to a short-term problem with a solution that takes multiple years to complete?” Sun asked. “You want to run the [factory] for the next 20, 30 years. It has to be a long-term decision.”
OZY partners with the U.K.'s Financial Times to bring you premium analysis and features. © The Financial Times Limited 2019.